The clock is ticking down toward another Super Bowl kickoff. You may be busy figuring out your office football pool and prepping heaps of hot wings and guacamole dip for the annual American ritual of gathering before 60-inch flat screens to worship our national pastime.
But amid the festivities, here’s something investors might want to keep in mind: Whoever ends up hoisting the Vince Lombardi Trophy on Sunday night in suburban Phoenix may offer a clue as to what your portfolio statement could say at the end of the year.
The so-called Super Bowl Indicator, while perhaps more market legend than serious investing guidepost, actually has a pretty solid record in predicting the performance of the broader U.S. stock market over a full year.
Hatched in 1978 by New York Times sportswriter Leonard Koppett, the theory basically goes like this: If a National Football Conference team (referring to franchises established prior to NFL’s 1970 merger with the then-upstart American Football League) wins the Super Bowl, the broader U.S. market will go on to end the year with a gain.
But if a team from the American Football Conference wins, the market is poised for a down year.
This year, the Seattle Seahawks of the NFC face the New England Patriots, the AFC representative.
The indicator has nailed the market’s full-year performance, straight through the uprights, for 36 of the past 48 Super Bowls, or 75% of the time, says Robert Johnson, president and CEO of The American College of Financial Services.
“It is somewhat amazing how accurate it has been,” Johnson said. “Not only is it accurate in terms of direction, the differences are stark." Beginning with the first Super Bowl in 1967, the Dow gained an average of 11.3% in years when an "old NFL" team won, he said. In years the "old AFL" won, the Dow declined an average of 0.7% (see figure 1).
So is this phenomenon just a curious statistical oddity or coincidence? Or should investors be decked out in Russell Wilson jerseys and shouting “Go Seahawks!” on Sunday? (Sorry, Pats fans!)
Johnson makes an important point: There’s a difference between “correlation,” or how often and to what extent two things happen to move together at once, and “causality,” meaning a true cause-and-effect relationship.
Taking this further, there’s the “spurious correlation,” when two events happen to be correlated but have no cause and effect whatsoever, Johnson said. Clearly, the data shows there is a correlation between the winner of the Super Bowl and stock market performance. But is there causality? Fumble.
So, what's the answer? Over time, the stock market has usually gone up, and the Super Bowl indicator covers at least three multi-year bull markets, including the current one. What that says about the longer-term quality of NFC teams versus their AFC counterparts, well … we’ll leave that to the sports talk shows.
Maybe the best thing to do is just grab a drink, settle in, and enjoy the game. (And stop thinking about the markets for a few hours—it’s Super Bowl Sunday, folks.)
“People want to take something that is very complex, like the stock market, and have some simple trading tool that helps navigate the mysteries of the market,” Johnson said. “They oversimplify.”